Bison Discusses the Paycheck Protection Program – PPP

Paycheck Protection Program (PPP) – Summary for Business Owners
by Michael Spitalney
March 30, 2020 Update

CARES Act and PPP Overview
The CARES Act recently passed by Congress is a $2 trillion economic relief package designed to help individuals and businesses throughout the US weather the severe financial impact of the COVID-19 pandemic. A key feature of the relief package is the creation of the “Paycheck Protection Program” (PPP), which will be administered by the Small Business Administration (SBA) under the umbrella of its 7(a) business loan authority.

The PPP program is intended to provide much-needed relief to millions of small businesses so they can sustain their businesses and keep their workers employed. These PPP loans will be made by participating commercial lenders between February 15, 2020, and June 30, 2020, subject to certain eligibility requirements, and will be 100% guaranteed by the SBA. Perhaps most significantly – the SBA will forgive loans if all employees are kept on the payroll for eight weeks and the borrowed money is used for payroll, rent, mortgage interest, or utilities. 

Application and Guidelines
Just today, the SBA published a sample application and some guidance on this incredibly fast-emerging program:
https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp

Also, here is a nice document put together by the US Chamber of Commerce. This is a good clear, summary of the information out at this time:
https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf.

There are still countless details to be ironed out in the coming days, but the above is a great overview of information known today.

Some Thoughts for Borrowers:
Below are some of my personal thoughts for borrowers. Again, these are all based on what we know today (March 30): 

1. This is being rolled out faster than any federal loan program in history. This means everyone is scrambling to learn, understand and process the details. Expect that your bankers will be scrambling to catch up for week and certainly in the beginning will not have all the answers.
2. Supposedly banks will start taking applications Friday.  So, while they *can* take them, expect that a) some won’t be ready to, and b) all of them will be overwhelmed with applications. Last year there was roughly $25B in SBA loans. This program calls for $350B to be originated in the next 3 months! The #1 national SBA lender did about 300 loans last year. The #9 lender did around 120. Lenders will be asked to soon originate tens if not hundreds of thousands of these new loans.
3. A sample application is out now, and given the above, I’d suggest getting a head start and getting all the information for the app ready to submit.
4. As soon as possible, you should start by contacting your banker, if you have a relationship with one. But I suggest you also look for other lenders/banks as alternatives, keeping an eye out for ones that seem to be moving quickly. Possible targets include:
   a) top 10-15 national SBA lenders – as they will be the ones to most quickly put processes in place to accommodate larger numbers of applications - https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders
   b) it sounds like new lending institutions that are not currently SBA lenders will be approved to make these loans. No telling how long this will take, but this might soon provide some new players less taxed with existing business borrowers.

Bottom line: for most borrowers, particularly those in dire need of accessing these funds, it’s probably best to go with whoever can take your application the fastest so you are in their queue as quickly as possible.

Highlights of the Program

Who qualifies?

• Small businesses with fewer than 500 employees are eligible. This is much different than typical loans, in that there aren’t many guidelines beyond that. No credit check, no minimum required cashflow. Another big difference from typical SBA loans: no personal guarantee or collateral requirements. Also, existing debt does not impact your ability to apply.

Who’s lending?

• Loans will be made by existing SBA 7(a) lenders or through any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating. Other lenders will be available to make these loans once they are approved and enrolled in the program. Lenders may begin processing loan applications as soon as April 3, 2020. Lenders will not charge fees for these loans.

How much can I borrow?

• The loan amount maximum is 2.5 months of payroll expenses and benefits. Your payroll is calculated by taking the average costs over the previous 12 months.

What can I spend the money on to ensure the loan will be forgiven? 

• The loan covers expenses that date from February 15, 2020, to June 30, 2020. 
• The loan will be forgiven completely if spent in the 8 weeks following the receipt of the loan on the following expenses:
  • Payroll, including salary, wage, vacation, parental, family, medical, or sick leave, health and retirement benefits (including insurance premiums). At least 75% of the forgiven amount must have been used for payroll.
  • Mortgage interest, rent or lease payments. 
  • Utilities.
• There is a provision for partial loan forgiveness, so it’s not an all or nothing opportunity.